Equiteq Deal Insight: Digital Media Consulting

Dentsu to acquire majority stake in Merkle, gaining market-leading capabilities in customer-focused data analytics & performance marketing


In our 2016 Global Consulting M&A Report, we observed that last year’s media buyers were dominated by a few large players, with one of the key drivers for acquisitions being their motivation to keep ahead of the competition within the context of a rapidly changing industry. This industry transformation is being led by the digital disruption of business models, particularly as it relates to how companies interact with their customers.
Merkle Image 1

This week, Dentsu Aegis Network, the international arm of one of last year’s top three media buyers, announced their acquisition of a majority stake in Merkle. Merkle is considered to be the largest independent U.S.-based agency focused on customer relationship management and search, managing a vast dataset of first-party customer records. Merkle is also one of Google’s largest agency partners and was one of the first agencies to offer custom audience data relating to Facebook.

Merkle Blog Table Image FINAL
Rumours of Merkle’s sale surfaced in May of last year, with valuation expectations referenced as being potentially over $1 billion. The auction reportedly delivered interest from several strategic industry competitors, as well as five of the largest private equity houses. The deal terms were undisclosed, but the enterprise value, which includes Merkle’s debt, is believed to be roughly $1.5 billion.

We identified Dentsu as being a highly acquisitive buyer since its landmark $5 billion takeover of U.K.-based Aegis Group Plc in 2013. Notable acquisitions by Dentsu this year included Gyro, one of the largest independent B2B advertising agencies, as well as digital analytics business, Cardinal Path and digital agency, Flock.

Merkle’s data management and analytics capabilities will further reinforce Dentsu Aegis Network’s transition away from legacy media, which is part of the buyer’s outlined strategy of being 100% digital across all of its businesses by 2020. The acquisition also creates leverage and operating scale in the U.S., continuing Dentsu’s drive to reduce its dependence from revenue generated in its sluggish Japanese home market.

“The growth of the digital economy is one of the few certainties in an uncertain world.”

“We are still continuing to use acquisitions to accelerate our growth.”

Jerry Buhlmann, CEO of Dentsu Aegis Network

Along with the other proprietary consulting segmental share price indices that we track, Equiteq’s Media Share Price Index has continued to rebound strongly since the market turbulence which followed the U.K.’s vote to Brexit. This demonstrates continued robust investor confidence in this attractive high-growth segment of the professional services market.

We expect Dentsu, along with other large media players, to continue to pursue acquisitions in the digital media space as they look for more opportunities to accelerate growth. As highlighted in our blog earlier in the year which covered Deloitte’s acquisition of Heat, companies providing innovative capabilities in the creative agency space will also be highly sought after by a range of other buyer groups. This includes traditional consultancies and technology players who are looking for opportunities to extend their offerings into a fast-growing adjacent service segment, as well as private equity firms who were notably active in the Merkle sale process.

*Financial and operational data, including rumoured Enterprise Value, utilize various third party sources. LFY = Last Financial Year, CY = Current Year.

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